The Tribune, Chandigarh, India

	Bankers see higher interest rates in 2010 Mumbai, December 20 With a substantial recovery from the economic slowdown expected in 2010, top bankers have said this could well be translated into a healthy pick up in the bank credit growth, but may also result in a higher interest rate regime. Also, a ballooning food inflation and advancing wholesale-price inflation might soon force the Reserve Bank, which unfolded its first phase of monetary stimulus exit by restoring SLR in October, to effect a "twin" action — hiking CRR and policy rates beginning from early next year, they said. With liquidity surplus in the system, a hike in Cash Reserve Ratio, the percentage of amount banks should keep with RBI, will help to mop up the excess, after which the central bank could start raising its lending and borrowing rates (repo, reverse repo), to exit from the easy money regime, bankers said. "The year 2009 was quite eventful for banks and it showed the resilience of the system to a huge crisis in related markets. "As we move ahead, when we shun the impact of slowdown, I expect the bank credit growth to revive considerably, which may result in upward movement of lending rates as well," Bank of Baroda chairman and managing director MD Mallya told PTI. Bank credit, which grew around 10 per cent in November, remained muted largely because corporates opted for non-banking sources for cheap finance in view of the sufficient liquidity conditions, Mallya said, adding once the RBI sucks out excess money, corporate borrowers are likely to come back to banks. RBI is widely expected to lift its policy rates by at least 0.5 per cent by April while a 0.5 per cent hike in CRR could happen as early as in January, bankers said. Oriental Bank of Commerce CMD TY Prabhu echoed the view saying that the industry is poised for a healthy revival in business in the next year and corporate demand is likely to go up in the next quarter. "We can see corporates coming back with their project proposals as the economic activities picking up. The pick up is already happening. This would only go better in the months ahead and I'm quite optimistic about the new year," Prabhu said. There are unlikely to be any issues in the bank's Non-Performing Assets (NPAs) over the next one year in the banking industry as the Reserve Bank has ensured adequate provisions from lenders — the latest measure hiking the risk weight for commercial real estate loans and raising loan loss coverage ratio to 70 per cent. "I do not see any alarming signs on the banks' NPAs as most of the banks have done adequate provisioning for likely defaults. The RBI's decision to hike the loan loss coverage ratio to 70 per cent is also a prudent move. I think all the banks will achieve that in the set time-frame," IndusInd Bank's head global banking group J Moses Harding, said. Bankers also expect the consolidation talks in the Indian banking system to gain momentum in 2010 both in public and private sectors, as it is warranted by evolving competition in the global banking space. — PTI
	UCO Bank plans follow-on public offer Ruchika M. Khanna Tribune News Service Chandigarh, December 20 UCO Bank is planning to come up with a follow-on public offer and raise about Rs 800 crore shortly. The Government of India has referred the matter to RBI for its approval. This was disclosed by the executive director of the bank, VK Dhingra, while talking to TNS here today. He was in town to inaugurate the bank’s centralised processing centre at its regional office here. “We plan to float approximately 13.5 crore shares by diluting around 13 per cent of the stake owned by Government of India. With this FPO, the GoI holding in the bank would be scaled down from 64 per cent to 51 per cent,” he said. Dhingra said depending on how much premium the bank is able to raise, they would raise the capital in two tranches. The ED said the major focus area for the bank this year will be on the rural and semi-urban market. “The government wants to focus on a 30 per cent growth in rural areas and we are working to double our credit in this segment in the next three years. Though we have received permission from RBI to open 84 new branches, spread over urban, semi-urban and rural areas, our focus will be on tapping the un-banked rural areas, especially in northeastern states. Since licence from RBI is not required to open branches in the northeastern states, we will seek the Board of Directors’ approval and open at least 15 new branches there,” he said. Dhingra said the bank already has two overseas branches at Singapore and Hong Kong, besides two rep offices at Malaysia and China. “We are trying to strengthen our capital base this year, following which we will look at further overseas expansion, including converting our rep office in Malaysia to a full-fledged branch,” he said. He said in order to better the financial health of the bank, a major restructuring process has been on for some time now, and is expected to enter its final leg this fiscal. The bank has already been infused with Rs 450 crore by the government in 2008-09 as part of capital restructuring, and will receive another Rs 750 crore this year. He added that in the past two years, the bank’s business had grown from Rs 1,01,000 crore to Rs 1,73,000 crore. “This fiscal, we are targeting a business of Rs 2,02,000 crore, with a 22 per cent growth in deposits and 18 per cent growth in advances,” he said.
	Pak refuses transit to Indian goods Islamabad, December 20 Pakistan did not agree to allow Indian goods to transit through its territory into Afghanistan during the latest round of talks on a new Afghan-Pak transit trade agreement. The issue of allowing Indian goods to transit through Pakistani territory into Afghanistan could only be discussed in the composite dialogue with New Delhi, an unnamed Pakistani official was quoted as saying by the Dawn newspaper. An Afghan official said the issue was a "minor irritant" and would not derail the talks between Kabul and Islamabad. India put the composite dialogue on hold in the wake of last year's Mumbai terror attacks and there is little likelihood of the process being resumed in the near future. New Delhi has linked the resumption of the talks to Islamabad taking action against the perpetrators of the worst terror attack on India's financial hub last year. During the fourth round of talks on the Afghan-Pakistan Transit Trade Agreement, which began here yesterday, the two sides agreed to allow trucks to move freely in each other's territory. Afghan trucks will now be able to operate up to the southern port of Karachi while Pakistani trucks can move across Afghanistan towards Central Asia. The three major pending issues taken up during the talks were transit facility, trucking facility and prevention of smuggling. Relevant authorities in both countries will finalise their reports on these issues by the end of the talks on December 21. An official of Pakistan's commerce ministry said changes are "likely to be made in the 1965 Transit Trade Agreement between Islamabad and Kabul". — PTI
	Market Update Extreme volatility expected by Lalit Batra The year-end profit taking pulled the key benchmark indices lower last week. Selling was mainly in the frontline counters with mid-and small-caps witnessing lesser slide. The Nifty nearly lost four percent from its 52-week high, which it rose to during the previous week. Murky economic outlook, worry of soaring food prices and possible interest rates hike also weighed upon the sentiment. For the week, the BSE Sensex lost 2.3 per cent to end at 17,720 while the NSE Nifty fell 2.5 per cent to shut shop at 4,988. The spotlight during the week was on the war between the BSE and NSE for implementing extended trade timings. The BSE and NSE postponed the implementation of new trade timings to January 4, 2010 from December 18, 2009, giving the broking fraternity some respite. As the market enters the expiry this week the market looks extremely volatile, with clear down side bias. Moreover, with the calendar year coming to a close, not much activity is expected from foreign financial investors either. Banking Banking stocks were the worst affected by the selling. The BSE Banking index lost 5.6 per cent last week. Expectations are on a rise that the RBI will raise interest rates soon to tame rising inflation. This is what possibly hurt banking stocks during the last week. Pressure on Bank stocks is simply because higher interest rates from the RBI will mean higher cost funds for banks. This would subsequently force them to raise their own interest costs thereby leading to a possible decline in credit offtake. Banking stocks also took a hit due to lower than anticipated credit growth. India’s food inflation as per official estimates, last week is nearing 20 per cent which is higher than the 19 per cent food price inflation that was recorded in the previous week. The wholesale price index on the other hand more than trebled to 4.8 per cent during November as rising prices of food items like potato, sugar and pinched consumers in a big way. This led the investors to speculate that a rate hike or a liquidity tightening measure could be in the offing, which in turn, could also apply brakes to the Indian GDP growth.
	Tax Advice Name, address of party must on cash memo by S.C. Vasudeva Q. I want to know can we issue a cash bill of scrap without party name and what is the consequences of cash bill in TCS payment. Is it compulsory to deduct the TCS if we issue the cash bill and if we deduct the TCS in which account it should be deposited. 2. If I deduct the tax and not deposit in time i.e.: I deducted the tax on October 31, 2009 and deposited the same on December 3, 2009, then how many months’ interest is payable by me. Is it 1 month or 2 months? 3. If a businessman doing finance business make a cash loan of above Rs 20,000. Is there any problem under the Income Tax Act? Is any restriction levied under the Income Tax Act regarding who do the finance business under proprietorship concern? — Mahesh Aggarwal A. There is no difficulty in your issuing cash bill for the sale of scrap. However, the name of the party and his address must be given in the cash memo/bill. The TCS will have to be collected at the prescribed rate and the same is to be deposited with the Government of India in Challan No. 281. You will be liable to pay interest for a period of two months in case of delay of one month and 3 days in accordance with the provisions of Section 206C(7) of the Income-tax Act 1961 (the Act). There is no restriction in giving a cash loan to any person. However, there is a restriction on a person accepting such a loan of an amount of Rs 20,000 or in excess thereof. The acceptance of such a loan attracts a penalty equivalent to the amount of loan so taken or accepted. There is no restriction under the Act for doing finance business as a sole proprietor. Form 15G Q. I am a retired bank officer and not a senior citizen. I have no other income and am having income from bank FDRs which is below taxable limit after taking into account the deduction, admissible under Section 80C. My wife and me depend on FDRs’ interest. Total interest on FDRs’ exceed Rs 50,000. Please advise whether the bank should deduct TDS on such FDR deposits if form 15G is given to the bank. — Kishore Kumar A. The bank is obliged to deduct tax at source (@10% plus education cess) in case the interest credited or paid or likely to be credited or paid during the financial year exceeds Rs 10,000. Form No. 15H can be filed only by a senior citizen if such individual furnishes to the person responsible for paying any interest, a declaration in writing in the said form in duplicate to the effect that the tax on his estimated total income of the previous year in which such interest income is to be included in computing his total income will be nil. Form No. 15G can be filed by a person (not being a company or firm) if such a person furnishes to the person responsible for paying any income in the nature of interest, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the aggregate of the income of the payee from such interest income does not exceed the maximum amount chargeable to tax. On the basis of facts given in the query, interest income earned by you exceeds the maximum amount which is not chargeable to tax. In my view, therefore, you cannot avail the benefit of filing Form 15G. Rebate on insurance premium Q. I am a retired senior citizen and submitting income tax returns regularly. My total pension with post office interest comes to Rs 2,50,000 in a year. Recently, I have taken life insurance policy and have paid premium of Rs 50,000. I will pay this yearly premium only for 3 years, after that I will withdraw my 3 years premium along with interest as the lock-in period is for 3 years. My query is as under: - How much rebate I will get on my above premium in financial year 2009-10? Whether interest earned on 3 years premium will be taxable at the time of receipt of such interest? — Devinder Singh A. In order to take the benefit or deduction under Section 80C of Act, the minimum period of holding of the policy has to be two years. The two year’s holding period basically implies that a person will at least have to pay premium for first three years. For example, if the premium payment is annual, then annual payments for three years have to made i.e. first premium at the beginning of the year and two more premiums. On the basis of facts given in the query, you would be entitled to a deduction of an amount not exceeding 20% of the capital sum assured. In calculating capital sum assured no account shall be taken of (a) value of any premium agreed to be returned or (b) benefit by way of bonus or otherwise over and above the sum assured which is to be or may be received under the policy. The taxability of the amount received on maturity would depend upon the premium paid with reference to the capital sum assured. The particulars with regard to capital sum assured not being given in the query, I am unable to give reply to the second limb of your query. Tax on gratuity Q. I was working as an officer and retired on 31/10/2009. I have received a gratuity of Rs 5,00,000. How shall the tax liability be calculated as gratuity in excess of Rs 3,50,000 is taxable. Please guide. — Dinesh Kumar A. The gratuity amount exceeding Rs 3,50,000 would form part of the salary income and brought to tax accordingly. However, the Act provides that in a case where a person is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt of, in any one financial year, salary of more than 12 months or a payment which is construed as a profit in lieu of salary and due to which his total income is assessed at the rate higher than that at which it would have otherwise have been assessed, the assessing officer shall, on a application made to him in this behalf provide such relief as may be prescribed. You can, therefore, seek a relief under Section 89 of the Act for the amount of Rs 1,50,000 which would become taxable. Rule 21AA of the Income-tax Rules 1962 provides for the computation of the due relief. You should file Form 10E along with the return of income for seeking the relief under the aforesaid section.